Commodities Wakeup Call
Regulators still stuck in the 70s when it comes to raw materials.
BY Caroline Cakebread | July 21, 2010
“Policymakers need a new commodities roadmap” according to Javier Blas at the Financial Times. As Washington puts the post-2008 focus on hedge funds, they are ignoring growing problems in the commodities markets — in this lightly-regulated sphere, policymakers are still stuck in the 1960s and 70s, when “emerging countries were minnows in the raw materials markets.” An excerpt is below and the full article can be found here.
Aside from the short-term impact of speculation, over the medium term, prices in commodity markets respond largely to murky supply, demand and inventories signals. And here is the problem that policymakers are ignoring the perils of the world economy. We know little about physical commodities markets and our understanding is worsening. The International Organization of Securities Commissions, an umbrella of regulators, made the point clear in a recent report* to the G20, warning that “the relative imbalance in the degree of transparency between financial [commodities] markets versus physical markets leads to greater scrutiny of financial markets – which are, ironically, by far, the most transparent markets – and obscures analysis of the many complex inputs into commodity prices”. Commodity financial markets track prices of and information from the underlying physical markets, Iosco said. Yet we know little about them.